23 April, 2024

US to Ban Algorithmic Stablecoins Like TerraUSD for Two Years

21 Sep, 2022

13 Mar, 2024

  • Terra-like Algorithmic stablecoins would be shelved for two years.
  • Existing providers are given two years to enhance their models.
  • The committee could vote on legislation as soon as next week.

Earlier this year, the de-peg of TerraClassicUSD (USTC) from the U.S. dollar spread spillovers throughout the cryptocurrency market. Regulators all over the world began closely monitoring the crypto ecosystem to impose stringent regulations.

According to Bloomberg, the Draft legislation in the United States House of Representatives would place a two-year ban on algorithmic stablecoins like TerraUSD (UST) while regulatory bodies study “endogenously collateralized stablecoins.”

According to the report, the latest draft is currently sitting with committee chair Rep. Maxine Waters (D-CA) and may need to be reviewed by ranking member Rep. Patrick McHenry (R-NC). 

TerraClassicUSD (USTC), formerly TerraUSD (UST), is an algorithmic stablecoin that lost its 1:1 peg with the U.S. dollar in early May, leading to losses in the tens of billions of dollars. The aftereffects of its dramatic demise still remain in the entire market.

The bill expresses concern about whether stablecoins like Synthetix USD (SUSD), which is currently collateralized with the native asset of the same protocol in the SNX token, would be covered by the “definition of stablecoins”. BitUSD, which is backed by BitShares, is another algorithmic stablecoin with a similar structure (BTS).

The definition covers stablecoins that “rely on the value of another digital asset from the SAME CREATOR to maintain their fixed price”.

However, the existing stablecoin providers are given two years to enhance their models by choosing different ways to collateralize their offerings.

The draft bill also requires the U.S. Treasury to conduct research on algorithmic stablecoins and consult with the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

The panel might vote on the proposal as soon as next week. Bloomberg reports that people familiar with the legislation say Democratic Representative Maxine Waters and Republican McHenry have been working together to reach an agreement on the legislation. The mentioned terms of the bill could change before the final version of it is rolled out. 



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